It may appear as if growth prospects in the insurance market are becoming rarer due to the highly competitive climate.
However, there is one type of business that is red-hot when it comes to merger and acquisition activity: specialized managing general agencies (MGAs).
It has been noted that a significant number of private equity firms, carriers and brokers have all shown interest in acquiring MGAs, with some going for EBITDA multiples in the high teens. Historically, these types of businesses tend to sell in the range of around 8x to 12x, which shows the extent of buyer enthusiasm at this time.
What is a managing general agency (MGA)?
The main difference between traditional brokers or agents and MGAs are that the latter is gifted with underwriting authority from an insurer. This allows them to perform additional tasks that traditional brokers would not, such as underwriting and pricing, binding coverage, appointing retail agents, and settling claims.
Often they are involved with rare coverage lines which require specific expertise, such as professional liability or surplus lines of insurance.
Why is there so much interest in these companies?
A large factor in the growth of R&A activity is the challenging market conditions stifling growth in other areas of the insurance market.
However, it is still true that the specialist product expertise within MGAs remains an attractive proposition for relatively risk-free and cost-effective growth, particularly among carriers.
Indeed, it is carriers that are stumping up the most cash for these sorts of deals, although there have been some particularly high-value acquisitions from financial buyers. Vitruvian Partners’ investment in CFC Underwriting in March 2017 is the perfect example of that.
CFC Underwriting had grown to become the largest MGA in the UK and this substantial investment has allowed to go from strength.
Other Major Acquisitions and Mergers
The launch of various new MGA incubators, including Vibe MGA Management (Vibe MM) last June, has been a significant driver of merger and acquisition activity for MGAs
Beazley expanded its hold on the Canadian market with the acquisition of the specialist managing general agent, Creechurch Underwriters, in February last year.
Specialty Program Group grew thanks to the purchase of Dallas-based insurance exchange
MarketScout in June. In September, it announced the acquisition of California-based Monarch E&S Insurance Services.
In that same month, insurtech startup Bridger purchased California-based SCJ Insurance Services.
July saw JenCap Holdings acquire privately-held Michigan-based Special Risks Facilities Inc.
U.S. Risk Insurance Group acquired Sarasota-based specialist trucking MGA Strategic Insurance Underwriters last September too.
This just the icing on the cake of M&A activity in North America last year - and this has trend has continued in the early part of 2018.
The Future of MGA Acquisitions and Mergers
It has been suggested that this interest won’t last forever and that once the market hardens, only the MGAs with particularly rare and desirable specialties will survive, as carriers may choose to rely on in-house expertise for less specialized areas of business.
However, at this stage, this certainly appears to a market with great opportunity for profit.
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